Hopeton Morrison, ContributorEVER HEARD the phrase 'home is where the heart is' or 'be it ever so humble, there is no place like home'?
These are all sentiments that some prospective homeowners can begin to sing. Prime Minister Patterson's announcement of whopping increases in National Housing Trust (NHT) benefits last Wednesday at Emancipation Park would have evoked plans towards owning a home for several first time buyers.
INCREASED BENEFITS
But the benefits go beyond the fact that beneficiaries can now access up to $3 million or $6 million if they double up with someone else.
With benefits for purchasing service lots moving up to $1 million for individuals and $1.6 million for those doubling up and home improvement loans climbing to $1 million and $2 million for both types of applicants persons can raise the bar a bit on their purchases.
And there is a second equally
important benefit to the prospective homeowner that may have been lost in all of the hype.
Interest payments are slated to become tax deductible, a benefit that mortgagors previously enjoyed. That is a very big benefit indeed, especially if the limits on the deductible is a reasonable one. Remember that any opportunity offered by the government to legally minimise your tax payments presents you with a 25 per cent premium on your income from that source.
According to media reports a source at the NHT stated that a contributor would have to earn a minimum of $15,800 per week or $758,400 per annum to qualify for the maximum benefit of $3 million. The issue of a contributor's gross earnings is really a function of a contributor's debt service ratio. This is your capacity to service the loan after all other expenses are taken into account.
For example, if you earn $60, 000 monthly and your total expenses before this mortgage loan is $24,000 your existing debt service ratio is 40 per cent. Although the norm is 40 per cent some lenders sometimes consider existing ratios up to 60 per cent.
There are some other factors associated with this ratio. For example does the contributor qualify for a 30, 25, 20, 15 or 10 year benefit? That, of course , is a factor of the contributor's age. Depending on the tenure the approximated amount of the repayment will vary as reflected in the accompanying table. (See Page C1).
EARNINGS
One could hardly regard someone earning $758,400 as a high income earner. But that is the top of the range for many professionals, including most teachers, nurses and policemen and women. In a real sense, then, one's capacity to access the benefits is really limited by one's earnings.
So we find that contributors who earn up to $5,000 per week ($20,000 per month) qualify for a two per cent benefit except in the case of persons aged 55 who qualify for that rate by virtue of the fact that they have a maximum of 10 years in which to pay off the loan. What all of this confirms, of course, is the accuracy of the statement attributed to the NHT source that only persons earning above a certain threshold will be able to access a mortgage of $3 million.
For those borrowers who are seeking funds above the $3-$6 million threshold, funds can be accessed under the Joint Financing Mortgage Programme (JFMP). The NHT has entered into this programme with other mortgage financing institutions.
Those partnerships allow NHT contributors to access their loan directly from these institutions without having to visit the NHT's Loan Origination Department in the process eliminating the need to make two separate loan applications.
Both loans are processed and disbursed by the institution at the same time. From a financing perspective the benefit is that you are not required to pay a service charge on the NHT's component of the loan.
Hopeton Morrison is general manager of St. Thomas Cooperative Credit Union Ltd. and lecturer in the School of Business Administration at the University of Technology. Please send comments and questions to: hmorrison@stccu.com
